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MOSL: OIL & GAS-OPEC cuts but duds to balance prices

OIL & GAS: OPEC cuts but duds to balance prices

** The 7th OPEC and non-OPEC Ministerial Meeting agreed an additional cut of 0.5mnbopd starting 1st Jan’20 on the 1.2mnbopd cut agreed in Dec’18.

** This leads to a total agreed cut of 1.7mnbopd. Also, a few countries, mainly Saudi Arabia, are likely to continue voluntary additional cuts, resulting in a total expected cut of ~2.1mnbopd (OPEC: 1.59mnbopd; non-OPEC: 0.51mnbopd).

** The additional cuts (of 0.9mnbopd) are in line with the expected call on OPEC crude, which is at 29mnbopd for 2020, down ~1mnbopd from the 2019 call at 30mnbopd.

** However, tepid demand has not resulted in any spike in crude oil prices amidst expected growth in US oil production and non-compliance of OPEC+.

Supply side caveats to stay…
** The aforementioned production cut (of 0.5mnbopd) is subject to full conformity by every country participating in the Declaration of Corporation (DoC).

** Even in the past, Saudi Arabia, the UAE and Kuwait complied, while others including Russia, Oman and Nigeria failed to attain 100% compliance.

** Additionally, domestic oil production from the US has touched an all-time high of ~12.2mnbopd in 3Q2019 (~9% up from ~11.2mnbopd in 3Q2018), with the EIA forecast standing at ~13.4mnbopd for 4Q2020.

** The forward Brent curve trades into backwardation, with 3M forward (Feb’20) at USD64.4/bbl and 12M (Dec’20) at USD59.5/bbl.